We used to have fun commenting about the bond market, including Treasuries, Mortgages, Municipals, and Corporates. But that was before the dark times. Before deleveraging.
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Monday, June 27, 2011

Payday loan lenders probably don't have very many friends, similar to their common maritime metaphor the shark. Calling them predators is a little presumptuous though. Think about it: is a shark hunting if the fish swim right into its jaws? While those who provide payday loans typically target low income wage earners through their marketing and rely on these folks to make a profit, it's not like they jump out of the water and snatch innocents to carry back down into the depths with them. In nature, if an animal is eaten, part of it is the animal's fault. Predators, after all, are only doing what they're programmed to do. And somebody has to do it.

If you're the kind of person these places like to see walk into their lobbies, then you need to understand a few things about payday loans. Number one, their entire existence, from formation of the contract to disbursement of the funds, is designed by the lender to make it hard to pay it back unless it's paid in full. They want that high interest. Why? Partly because interest is where money is made when lending, but also because the people they target tend to be those with bad credit and excessively high interest is the only way, allegedly, that lenders can borrow to people with such risky credit histories without losing money. Either way, it's fundamental that you understand that from the very beginning, the cards are stacked against you if you don't have a responsible well-thought way to pay back the loan within a week or less.

Finding the right payday loan lender is less about seeking out shreds of kindness in the varying terms and conditions of multiple lenders – because underneath nice language none of them are particular nice – and more about focusing on whether or not they provide enough information openly about their different loans and how they're repaid and what your options are. CashNetUSA Payday Loan for example has an FAQ page that's actually quite useful compared to similar online payday lender websites that seem to only want to "ask" questions that nobody particular wants answered. While I can't say their interest rates are any lower than the competition, at least they let you know what the process is like if you're unable to pay. The penalties might seem outrageous, but there's something to respect in a lender at least letting you know in advance.

It takes a dedicated sense of personal responsibility to avoid getting yourself into a payday payback mess in the first place. Never borrow such a loan without making sure there's a way to pay it back immediately. Understand when an emergency calls for such a loan and when you're just looking for an easy way out. Payday loans are not an easy way out. They're a way to acquire a large sum of money quickly if timing demands it and you're virtually unable to find another source of money in the time it takes to fix the emergency. In any other case, do everything you can to secure another source of emergency income. If you choose to swim with sharks, don't say nobody ever warned you about getting eaten alive.

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Accrued Interest

1 comment:

Well Said!! Payday Loans are just short term loans that will save you in financial emergencies. Only borrow payday loans when you are confident of repaying them in 30 days as the interest rates are very high.

About Me

I oversee taxable bond trading for a small investment management firm. Opinions expressed on this website may not reflect the opinions of my employers. Strategies described here should not be taken as advice, and may not be the strategies being used for my clients. Take this website as the egotistical ramblings of a bond geek and nothing more. E-mail is accruedint *at* gmail.com or find on Facebook.